Oct 16, 2020
Bitcoin Weekly Outlook
Key Price Levels
Weekly Key Price Levels
- Support: $11,114
- Pivot Point (midrange): $11,368
- Resistance: $11,794
Monthly Key Price Levels
- Support: $10,626
- Pivot Point (midrange): $10,947
- Resistance: $12,000
Big Picture
- October is proving to be a very different month than September, a bullish month. During the first two weeks of the month, bitcoin has regained the 11k range.
- Long-term, the bull run stands. Bitcoin extends its longest streak above 10k (82-days and counting). Notice how the price is following bitcoin’s upward trend.
- Short-term, however, bitcoin is exposed to intrinsic and systematic risks since the relationship between equities and bitcoin intensifies.
- Volume continues at low levels, but retail is beginning to show more interest in the crypto king. We are in desperate need of greater volume levels to power bitcoin’s engine.
- Volatility continues to decrease, yet dry exchanges indicate lower liquidity and greater exposure to short-term abrupt price movements. Thus, a retest of $10,947 is likely if support at $11,114 doesn’t hold.
- As long as bitcoin remains above 11k (10.6k if you want to be more conservative) we expect further gains driven by bullish momentum.
- Risk is high and we expect it to increase over the following weeks with the upcoming US 202 Elections and Covid-19 induced lockdowns, so it is best to keep an eye on the following key levels:
Volume
Following a bullish week, bitcoin is taking a breather as we retake the 11k range once again. The week kicked off with extra bullish momentum as bitcoin made its way to retest resistance at $11,794. However, the lack of significant volume, price is outside the 70% volume area, impeded bitcoin from breaking through the said significant price level and continue towards 12k.
Indeed, from the above chart, we can see that bitcoin lacked sufficient bullish volume (green volume bars) to break through $11,794. The latter caused a dent in the On-Balance-Volume indicator since big players didn’t contribute much this week as it’s signaled by the lower high in the said indicator. Thus, we expect bitcoin to retest support at $11,114 in the near term. Unless an increase in retail interest increases the volume flow into bitcoin, making up for the low-interest big players have at the time.
If big players haven’t stepped up (number of entities with > 1k BTC decreasing), it’s up to retail investors to drive bitcoin’s price above the 11k range. As bitcoin regained the 11k range, bullish sentiment moved the market, and bitcoin’s futures volume-perpetual disrupted the downward trend. Now, the question is whether retail’s increasing interest in bitcoin is enough to drive bitcoin up.
Hypothesis 1: Increase in bitcoin futures volume-perpetual is not enough to move bitcoin, thus bitcoin is consolidating.
Volatility
Let’s zoom out first, see what’s going on with bitcoin’s volatility from a macro perspective.
It’s safe to say that savings bear a greater risk in the equity markets than in bitcoin; a phenomenon some deemed impossible, but as bitcoin matures it’s normal to see volatility decreasing. Especially, when we consider that bitcoin is a safe-haven asset (uncorrelated in nature). Short-term, however, bitcoin remains exposed to market inefficiencies, and liquidity risk (lower liquidity implies that greater volatility is around the corner).
Liquidity continues to be a problem with bitcoin. Yes, it’s a bullish indicator because more bitcoin moved from exchanges to wallets means that saving sentiment is increasing (as more bitcoin is moved to wallets -> savings sentiment increases -> bullish sentiment.). On the other hand, dry exchanges (less bitcoin in exchanges) signal upcoming volatility.
Returning to our initial, or base, the chart we see that volatility is increasing short-term. Notice how bitcoin’s average true range (the absolute units that bitcoin is expected to move in a day) begins to increase as Friday’s candle mingles with the lower boundary of our consolidation range. Bitcoin tends to move aggressively once this happens, especially when there are low volume levels providing liquidity (lower liquidity).
Therefore, we can say that even though bitcoin is consolidating, the said phase is coming to an end and bitcoin is going to move aggressively. Let’s take a look at bitcoin’s Bollinger Bands to determine where the price may end up in the upcoming days.
Support and Resistance Levels
Bitcoin is finishing its consolidation phase and low volume and liquidity indicate that volatility is going to spike in the upcoming days, thus it’s important to determine significant price levels to set alerts.
Reinforcing our consolidation thesis, bitcoin’s Bollinger Bands seem to agree. As the spread between the bands' increases, we expect to see further price deviation from the mean (in absolute terms, thus bitcoin can remain within +1SD and +2SD or drop to retest other significant price levels). Our first take from the chart is that bitcoin needs to remain above $11,368 for further attempts at $11,794; yet, it’s likely that bitcoin will dip to the 10k range once again and settle within $10,975 and $11,114 (support 2 and support 1, respectively). If market sentiment turns bearish, however, bitcoin can drop to retest $10,626, and in the worst-case scenario: retest support at $10,200.
Hypothesis 2: Bitcoin sentiment remains bullish from last week; thus, the price will retest resistance at $11,794.
From the looks of it, bullish sentiment has taken a small dent (HODLER net position change) as the accumulation of bitcoin undergoes a downward trend. Implying that it’s likely that bitcoin will drop to retest support at $11,114 in the short run. That is, of course, if our indicators remain constant. As we saw previously, bitcoin can dip to retest the 10k range but will make a quick recovery if bullish momentum persists.
Hypothesis 3: Bullish momentum will halt the drop between $10,974 and $11,114 and bitcoin will make a quick recovery (bitcoin regains the 11k range).
Midterm momentum remains bullish as bitcoin is driven by the bullish crossover that led to the regain of the 11k range. Short-term, however, bitcoin is taking a breather, following the recent +9% gain. Bullish momentum is slowing down because recent selling pressure (cave in RSI and Friday’s red candle) is causing the spread between the MACD and the signal line, and between exponential moving averages to decrease. Unless bitcoin perfects a bearish crossover (EMA8 < EMA34) bullish momentum persists and bitcoin remains within 11k (after a quick dip to 10k range).
Conclusion
Bitcoin’s outlook remains bullish: the flow from exchanges to wallets continues to increase indicating further bullish sentiment and the king’s trend continues upward. However, the short-term risk remains as momentum and sentiment take a small dent, and bitcoin’s price deviation is increasing (wider Bollinger Bands); so, we expect bitcoin to dip to the 10k ($10,974) range before continuing the bull run. If the market structure changes to bearish, bitcoin can retest support at $10,626 (S3). If bitcoin’s upward trend remains strong, bitcoin will crossover $11,368 and make another attempt at $11,794 which could lead to 12k if bullish momentum and buying pressure increase.
Trading Strategies
Conservative Strategy: Long-term and short-term bitcoin remains bullish, although a spike in selling pressure is pushing bitcoin towards lower support levels. It’s time to profit off the dip. Set a buy (limit) order at $10,975 with a tight stop-loss at $10,626. Odds are bitcoin rips after the small dip if bullish momentum persists, so set your profit target at $11,794.
Aggressive Strategy: Bitcoin is holding up at $10,368 as the consolidation phase is over. Bullish momentum and buying pressure remain as retail is driven by FOMO and more market participants enter the market, yet volume remains at low levels. Therefore, we expect bitcoin to take upon a big move in the upcoming days. Buy the red candle and let’s hope that bulls pump it over the weekend. Set a buy (limit) order at $11,368 if RSI doesn’t drop below the bullish zone (RSI < 57). Your stop-loss needs to be tight (@ $11,000) to avoid falling victim to bitcoin’s big move, and your profit target should be set at $11,794.
